Alternative Minimum Tax

Democrats have vowed to protect middle-class households from the alternative minimum tax. The tax was created in 1969 after it was discovered that 155 households with incomes over $200,000 had used deductions, shelters and other gimmicks to erase their federal tax liability.

To force the wealthy to pay the IRS, Congress created the minimum tax, essentially a flat tax with two rates (26 percent and 28 percent) and far fewer deductions. Households the AMT could apply to are required to calculate their tax bill twice -- once under regular tax rules and once under AMT rules -- and pay whichever is higher.

Because the AMT was not indexed for inflation, it has ensnared a growing number of upper-middle-class households. Add the Bush tax cuts, which lowered tax rates under the regular rules but not under AMT rules, and the number of taxpayers who could be caught by the AMT is set to soar from 3.8 million this year to more than 30 million in 2010.

In the past, Congress has limited the scope of the AMT by temporarily increasing the size of the exemption accorded AMT taxpayers. But that stopgap could cost nearly $50 billion next year. And repealing the AMT would cost more than $1 trillion over the next decade.